The full transcript of the Financial Analyst Briefing Bach Mount held at CES on the 7th has now been published, and in fact contains quite a bit of info about Windows Mobile 7.

We have cut out many pages of text related to Xbox and Windows 7, but what’s left over is still many pages long, so sit back, relax and get ready to read. We have also highlighted what we felt was important in italics, but of course left the rest for context.

It starts off with an analyst refusing to accept â€œWait for MWCâ€ as an answer, resulting in quite an exposition by Robbie Bach.

QUESTION: So, I apologize a little up front, because clearly there’s a lot of great things going on and we saw that last night. But, I want to talk about Windows Mobile, since it falls under your remit, too, and I know you have Barcelona coming up next month, yada, yada, yada. But, the question is —

ROBBIE BACH: You already stole my answer.

QUESTION: I’m not taking that as an excuse. So, on Windows Mobile, clearly it seems like that is the area that is lagging most right now, in terms of what’s happening with the operating system, market share and so on. So, what do you think strategically are the key levers for you to turn that momentum around and can you give us any kind of sense of timing around Windows Mobile 7? Could that be more like a Windows 7 event for you, et cetera.

ROBBIE BACH: So, I think the number one thing that we have to do on Windows Mobile going forward is about the experience people had with the phone itself. I don’t think we have a business model problem, per se. I don’t think we have some specific challenge outside of the fact that our experience is very skewed towards business users, and it’s not as modern as it needs to be. And I’ll just be as straightforward as that.

So, the challenge for us as we come into 2010 and we are going to have some new things that will talk about at Mobile World Congress, as we come into that, the first bar people should look at is to say, wow, are they doing a great job with the product. And when you look at the product, I’m sort of like, I have the luxury of having seen it, to be able to look at it and played with it a little bit, but I’m certainly confident people are going to see it as something that’s differentiated and something that really does move the bar forward, not in an evolutionary way from where we are today, but it’s something that feels, looks, acts and performs completely different.

So, that’s the first going I think we have to do. The second thing I’d highlight is our go to market approach has been — we haven’t been as engaged in the go to markets as we need to be going forward, let me just say it that way. Certainly our operator partners will take the majority of the go to market work when they bring a phone to market. OEMs participate in that, as well.

We have not played as big a role in that in the past. And what we’re seeing happen, particularly with smart phones, is that whether you’re an Apple, or you’re actually producing the hardware, or whether you’re a Google where you’re sometimes sort of producing the hardware, and sometimes not. They’re participating more heavily in the go to market that’s driving consumer demand. And what that means is more volume for the products that are getting the marketing spent. It’s not a crazy idea.

So, that’s an additional muscle we have to build. That’s why we launched the Windows Phone brand. We’ve actually had good success without spending a ton of money. Raising awareness on Windows Phones in the U.S., and a couple of European markets where we’ve actually spent against it. Our goal is to enhance that and pick up that momentum.

So, those would be the two big things. Once you get past those things, then you get the opportunity to do a lot of other things. I think there are services opportunities, I think there are search opportunities. I think there are other opportunities we can build on top of that. But, those are sort of the ante to be a serious competitor and somebody who people can look at and say, wow, I think these guys are going to build a big business here and it may take them a little bit of time, but these guys are serious.

QUESTION: Thank you very much. Going back to Windows Mobile for a moment, in comparing actually the Xbox world to the smart phone world, right now there are three major platforms out there. You’re one of them, and at various times in the past there have been four, generally not many more than that, but somewhere between three and five. As you look at the smart phone world, clearly iPhone seems to be well established. Android appears to be establishing itself right now. And then you have Blackberries is sort of there. We’re not quite sure where they stand. Windows Mobile is vying to get in there. How many platforms do you think the smart phone world, after the whole shake out happens in a year or two years, how many can adequately be supported, and do you see similarities between those two worlds, maybe you can port it back and forth. And how can you ensure that you’d be one of the final survivors in it?

ROBBIE BACH: Well, it’s not — the analogy is not quite right, because the way the business model works in the two cases is actually very fundamentally different. By definition, most consoles tend to be a managed environment where you have a much more vertical structure in the ecosystem. Microsoft, Sony, and Nintendo all have their own first party publishing capabilities. We’ve introduced hardware and software service. So, it’s much more closer actually to Apple, if you want to think about it that way.

In general, in the mobile space, you have operators and OEMs who have a big say and impact in what goes on in the marketplace. But, I think it is a little bit different. With that said, I think everybody would say, there are too many operating systems in the mobile world today. I’m not talking about the smart phone world necessarily, but if you just look across the million, two million, or billion, two billion, feature phones sold today, I don’t think there’s an operator in the world that wouldn’t tell you that it’s a pain to support all the different operating systems they have, in particular the 17 versions of Linux they have on feature phones, all of which are a little quirky and a little different, require separate network certifications, network product support, and the like that goes along with that.

So, I think there will be inevitably some trimming of that tree. I think that’s certainly true. In the smart phone case, I think you’re going to see two types of things developed. One, I think you’ll see some people put Apple in this category who will say, hey, I’m going to do operating system, phone, et cetera, all myself. So you can decide to categorize that by OS, you can also categorize that by hardware and be the same categorization.

There will be other people like us, perhaps Android. They can be some place in-between right now who will say. No, actually, we’re working with a lot of different hardware manufacturers. So, there will be a hardware market share number that will be a blend of different operating systems for each hardware vendor. And then there will be an operating system share.

You know, overall, you look at markets like this, we think over the next three to five years it’s going to be 400 or 500 million smart phones sold a year. I think there’s a lot of room. It’s going to quality in term and not capacity. I think some of the current systems will fall away. I don’t think that will be because there’s not room for another operating system. I think it’s because their quality bar won’t stack up. And they won’t get the scale that they need. And our job is to make sure we get that scale. So, I won’t speculate on the number of operating systems you can see. I certainly think in the feature phone space you’ll see some pruning of the Linux tree, and I don’t think that’s really sustainable.

I think you’ll see some guys who are doing end-to-end things, who obviously control their own destiny and will either be successful or not. And then you’ll see some folks like us who are supporting multiple hardware manufacturers. I certainly think we’re going to be in that list of companies that are successful and then maybe there will be a few others.

ROBBIE BACH: We’re very focused and confident in the work we’re doing right now and while I don’t think, if you looked across the past two years and what we’ve brought to market, we’ve executed as well as we would like. I think the market data would bear that out. I’m quite optimistic with the new team we have. I’m quite optimistic with the new work we’re doing, and I’ll gladly drive for that two-year period and meet you on the other side and feel comfortable we’re going to be in the right place.

JOHN DIFUCCI: Hi, Robbie. John DiFucci from JP Morgan. I’m sorry to keep going back to mobile and that scenario that you’ve struggled with, but everything else seems to be going so well.

ROBBIE BACH: I’ve been waiting for you guys who want to talk about the good stuff for five years.

JOHN DIFUCCI: I have a question on mobile. Last night Steve used the term PC pretty loosely, more loosely than I’ve heard him use it before in describing a lot of different devices, at least maybe I wasn’t listening before, but it seemed to me anyway, he used it pretty loosely. When I look at your vision of three screens and a cloud, that one screen seems to be the most dynamic when you think about cell phones, PDAs, Blackberries, iPhones, people are talking about tablet. Is that coming down from PC or coming up from there. When I look at all that and I think about your struggles in mobile, and I sort of wonder how is all that driving your strategy in mobile and how does Zune play into all this, because you’ve gotten a lot of critical acclaim with Zune, but your adoption probably has been somewhat disappointing. I know that’s a broad question, but if you can address that?

ROBBIE BACH: It’s actually two questions in one, so let me separate out the questions. Certainly, in terms of the way we think about the segmentation in that marketplace, I think of devices that you put in your pocket and talk on, and I think of devices that you might carry with you as a different class of devices.

I think of devices that you’re going to want to do, where the user experience has enough real estate, where you can have a rich experience with what I’ll call a Windows 7 class UI as one type of device. The smaller devices can have a great UI and be very interactive. But, it’s going to be a different form factor and a different UI.

So, broadly, when we say three screens, we’re saying small portable screen, that mid-sized screen, and then there’s the big TV screen. Now, the truth is, those are all going to blend at some level and, in fact, when I say three screens and a cloud I could just as easily be saying many screens and a cloud, because you have more than one PC screen in your household. You have more than one TV screen in your household. And actually in our household we have five mobile phones. So, it’s actually a many-screen strategy.

Over time the distinction between the screens from the user’s perspective, when am I on my phone versus when am I on my PC, that’s going to blur a little bit. The service delivery is going to be critical, that’s why our cloud applets are so important. That’s why I keep talking about cloud delivery, what we’re doing with Windows Live, what we’re doing with Xbox Live, why Azure is so important to us, because it really will enable us to reach all of those different screens.

Now, your other question was about — I’m getting old. Zune, so Zune has been critically successful. And the way Zune is going to be successful for us in the future is you should think of that as our media service across multiple screens. We’ll continue to have the Zune device screen. But, we now have Zune on Xbox. We have Zune on the PC. There are other places where Zune logically could go that we don’t get to talk about yet. And I think lots of different screens with that capability can go.

So, the reason I’m excited about the critical success. Do I wish we were selling a few more Zunes? Of course, we always like to sell more. The product is doing fine. But, the reason I love the critical success is because we have a great design. We have a great concept. Now, I’ve got to help build the brand. I’ve got to move it to get more leverage out on the screen, and as we do that I think we can really take that to a higher level.

The last thing I’ll say about Zune, you have to decide how you think about Zune. Is Zune a business of a capability? In large part, Zune is about delivering video and music. Video and music has business aspects for us, but the process of being a music distributor is not a fabulous P&L business. The P&L business is based on selling more phones and more Xboxes, and more PCs, and all those kinds of things.

So, that’s kind of the way, to give you sort of a general way of thinking about Zune and where we’re going. That was sort of a general answer to kind of a general question, but hopefully it gives you a little bit of the direction.

From the above we can conclude that Windows Mobile 7 is almost certainly being announced at Mobile World Congress, it will look nothing like the Windows Mobile we currently know and love, that Zune will be coming to Windows Mobile 7, and that Microsoft intends to be one of the survivors in any mobile OS shake-up, and have good confidence in their new development team.